TRUenergy to head $25bn IPO crop

Australian investors will have an estimated $25 billion in initial public offerings to choose from this year, after investing only $1.1 billion in floats in 2011.

But as equity markets emerge from their worst year for new listings since 2001, fund managers have warned vendors that they have to lower their price expectations to current market levels.

While there are some signs of life in the IPO market this year, including the potential $4 billion TRUenergy listing, bankers expect most floats to be delayed until the second half of 2012, at best.

Fund managers said they would back IPOs, provided they were priced appropriately given market conditions. “There is huge appetite for IPOs," Aviva Investors head of equities, Glenn Hart, said yesterday.

“The trouble is IPOs are going to be compared with existing share prices which are very low. Vendors have to reduce their expectations if they want to sell, given where the rest of the market is trading."

However, many vendors are choosing to sell their assets to trade buyers or simply postpone float plans in order to achieve better prices.

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“Given Australia has a relatively mature IPO market, it is unrealistic to expect a boom in IPOs in the short term," Macquarie Capital global head of equity capital markets, Paul Donnelly, told Financial Review DealBook.

Should markets improve – and there are no guarantees that they will – and the upcoming reporting season reveals the corporate sector in reasonable shape, postponed IPO candidates could be dusted off later this year, he said.

Hoyts, Barminco and Witchery could return in 2012, while bankers expect the long-talked about Pacific Equity Partners’ Link Market Services and Carlyle/Seven Group’s Coates Hire to consider a listing later this year if conditions are right.

There is also $5 billion of equity issuance to come out of New Zealand’s privatisation program, expected over the coming three years.

The first blockbuster float of 2012 could be CLP Group’s TRUenergy, which has appointed Rothschild to examine a possible $4 billion-plus listing. TRUenergy’s long-time adviser, Morgan Stanley, is also expected to play a role in any float.

JPMorgan head of equity capital markets David Gray said that the private equity sellers would have to ­consider retaining a stake themselves in any business they wanted to list.

“In my opinion, the model of the 100 per cent exit by financial sponsors is probably dead," Mr Gray said.

“I think fund managers are now less worried about overhang and more concerned about the sponsor keeping meaningful hurt money in the game and the performance of the business."

Former private equity IPOs Myer and Collins Foods have shed 52 per cent and 48 per cent respectively since listing in 2009 and 2011. In both cases, private equity owners sold down in full.

Credit Suisse head of equity capital markets Campbell Lobb, who oversaw three IPOs last year, said the way new listings were sold to the market was the biggest change in recent years.

IPOs are being sold in front-end bookbuild processes, which involve the stock being sold to institutional investors and retail brokers before the offer is underwritten or the company’s prospectus is lodged with the Australian Securities and Investments Commission. “I suspect that will continue in the future, because it provides more flexibility to the process," Mr Lobb said.